Tag Archives: lean startup machine

How A Rusting Giant Can Act More Like A Startup

This is a Q&A with Trevor Owens, Founder of Javelin, by Adam L. Penenberg originally published on PandoDaily, and re-printed here with Trevor’s permission.

Why should big companies emulate startups?

Back in the day, everyone wanted to work at a place like IBM. Today corporations are viewed as stodgy. Many of us don’t know what they do anymore and even if we did, we probably wouldn’t care. These bloated companies with their thousands of workers trapped within walls of bureaucracies aren’t growing anymore. In fact, their markets are shrinking.

The time between the birth, growth, and death of a large enterprise has shrunk dramatically over the years. Of the companies listed on the Fortune 500 in 1955, nearly 87 percent of them have either gone bankrupt, merged, reverted to private ownership, or lost enough gross revenue to be delisted. A study of the S&P 500, which ranks companies by market cap, found the average age of a business on the list was 61 years in 1958 but only 18 years in 2012. In the past, being big was in itself a defensible position. Now it’s not.

Contrast that with the frenetic growth and buzz surrounding successful startups. Instagram employed just 12 people when it sold for $1 billion. Snapchat had about 30 people when Facebook offered to snatch it up $3 billion. Whatsapp employed 50 or 60 people when it sold for $19 billion.

Big companies see this, and feel the cultural pull away from them. They’re starved for growth. If they want to compete, they have to become more like startups. Otherwise they’re in jeopardy of disappearing all together.

Why do big companies have trouble innovating?

When a company gets big, bureaucracy is layered throughout. In some ways it’s a necessary part of growth. The reason it exists is so the company doesn’t fall apart. The more people you have working for you, the more you need to manage them to ensure they get the support they need to do their jobs. Then you have whole divisions that exist simply to produce and sell, and their heads aren’t interested in new ideas, products, or ways to do things that could interfere with their bottom line, because that’s how they’re judged and compensated.

Couple all that with the main goal of a company, which is to serve existing customers. That’s where the resources go. Corporations offer an environment of execution and maintenance but not innovation, and rely on good management to target their best customers and deliver better products. That’s fine when they’ve identified and mastered their markets, but they get disrupted when a new entrant comes along that can deliver a good enough product at much lower cost of higher convenience. New entrants target low-value customers then quickly climb the value chain with a better cost structure. Think Netflix versus Blockbuster or Napster invading the recording industry.

Part of issue is there’s no management philosophy built around how to innovate within a large enterprise. With new companies we have the Lean Startup Method, which offers a framework for constantly improving a product to find the best product-market fit before you actually go into production or invest gobs of money in creating any infrastructure. This is the first time we’ve had a repeatable process. But there is no analog for large companies. They have to develop some basic structures just to deploy lean startup methods.

How are some big companies innovating like startups?

There are two parts to innovating like a startup. One is generating a flow of high-quality (i.e. validated) ideas. We call this “innovation flow” — similar to the idea of deal flow for venture capitalists. If a VC doesn’t have good deal flow he won’t get returns.  The other is the need to create a structure to incubate these ideas called an “innovation colony.”

Intuit does the first part well. It kind of copied our lean startup workshop and scaled it throughout the company. After employees have been trained in lean startup methods and know how to validate ideas, they can take advantage of unstructured time (also known as 10 percent time) to work on any project they want to validate that can potentially become a successful new product. If they find they have something they can go to their boss for funding, and this has led to some viable products, including Sparkrent.

Facebook is famous for hackathons. That’s where the Timeline was first imagined. Employees can work on anything that relates to the company’s products and deliver a down-and-dirty prototype during a 24-hour hackathon. Companies like Nordstrom are becoming sophisticated at lean startup methods. It runs weeklong experiments. One from 2011 involved an iPad app that helps users choose eyeglass frames and another addressed the physical design of its retail stores.

Companies also acquire startups to “buy growth,” although few buy at the right time. One that did was Twitter, which acquired Vine before it launched, left it alone to carry on its mission without interference, and it ended up a great acquisition. Vine clearly had product/market fit right out of the gate.

What about skunkworks, innovation labs, and intrapreneur programs?

For large companies there are three traditional innovation structures:

First, there’s skunkworks, when you hire a bunch of smart people to work on pie-in-the-sky technologies. Motorola, for example, hired away a former head of DARPA to run its skunkworks. It only works on highly technical products with low market risk — like a faster jet plane or Amazon Web Services. It’s not good for developing, say, an app like The Daily and it won’t help you find a market or determine product-market fit.

Then there are innovation labs. Perhaps the best known was Xerox Parc, which was the original Innovation Lab. It came up with brilliant ideas but failed to commercialize them — until Steve Jobs came along and borrowed (some say stole) them. Innovation labs that focus on innovative technologies are known to struggle with commercialization.

Finally, you have intrapreneur programs, which are the latest fad: a four- or eight-week program where employees take time off, explore some ideas and a product, and have to sell it to a business unit within the company.  The issue comes back to the incentives inherent in successful business units. They resist ideas they didn’t come up with, no matter how big their potential. They favor incremental innovation that won’t cannibalize their own sales over something that could change their industry for the better.

As a corollary you can have something we recommend: innovation colonies. This is a way for companies to create a fund to invest in ideas their employees have. To participate, though, the employee has to give up the security of their jobs in exchange for equity in the venture. Microsoft, Kaplan, Nike, Barclays, and Disney are just some of the companies utilizing innovation colonies.

Here’s how they work: Employees pitch their ideas, which have been validated, get funding, and own a majority of the equity in these products in the seed stage. They work with other entrepreneurs and the company offers advisement, mentoring and other resources. They seek to develop products, take them to market, and if they gain any traction they can raise a series A with outside investors. They run the company without interference from the Mother ship. In the end, the big company can offer to buy their startups back. The magic is that the entrepreneurs are incentivized to build a real business.

Is it a good idea to offer equity stakes within corporate environments?

Oh, yes. In fact, we advocate for employees to get equity on their projects. Let me emphasize that I mean equity in the product, not the company. Equity attracts the best people because entrepreneurs are motivated by achievement and autonomy and are willing to take less in salary in exchange for more upside in their ideas. Of course, they want to see millions from their products, if they’re successful, but it’s not just about money; it’s what it represents. It’s about being recognized for your achievements. Face it: you have to be a little crazy to be an entrepreneur. This is the whole point of the innovation colony structure.

If you don’t give employees who are entrepreneurially minded equity in their projects they’ll leave to start their own companies. This happens even at innovation-friendly environments like Google: Ev Wiliams (Twitter), Kevin Systrom (Instagram), Dennis Crowley (Foursquare) all left to launch their own ventures. It’s unfortunate that Google doesn’t share in any of the billions they’ve created.

Not only do you want to hire the best and brightest, you want them to stick around and create the kinds of innovative products and services that will also ensure your company sticks around for the long term. Some large companies make the mistake of addressing a problem by simply throwing 15 developers at a problem thinking it will lead to something. Instead, great ideas come from all over an organization and may even seem like bad ideas at first until you validate them.

Once a company realizes this, anything is possible.

Trevor Owens is a thought leader on Lean Startup. He is the Founder of Javelin, a provider of tools and services to learn, launch and track new business ideas, and Lean Startup Machine, a three-day workshop that teaches entrepreneurs and innovators how to build startup products. He has a new book called The Lean Enterprise that talks about how to bring the startup mindset to larger organizations.

Top 7 Lessons Product Managers Can Learn From Lean Startup Machine

A few weekends ago, I participated in the Lean Startup Machine workshop held in Washington DC. For some time now, I’ve been thinking about how Lean Startup principles can be utilized to drive product innovation and if they can help product management become more efficient in driving product development and delivery. The Lean Startup Machine (LSM) workshop offered an opportunity to gain hands-on learning in applying Lean Startup techniques. The workshop proved to be an unforgettable experience.

Here are the top lessons I learned from the workshop and how they’re applicable to product management.

1. “Lean Startup is about running the simplest experiment to validate a business assumption.” – @SargeSalman. As I’m learning myself, there are many misconceptions about Lean Startup. Chief among them is that lean means cheap. It does not. Lean means not being wasteful. And the way it’s applied to business problems is by challenging you to think critically about the assumptions underlying your business or product idea, and then to systematically and rigorously test them to prove them true or false.

build-measure-learnLean Startup challenges the traditional business practice of using product releases as the as the metric of execution by espousing learning as the metric of progress through the use of validation/invalidation of one’s assumptions through testable hypotheses. As a product manager, this makes sense to me as one of the things I should be doing is thinking critically and analytically about my product solution.

2. Go talk to your customers. Constantly. Lean Startup starts with Customer Development, a method Steven Blank introduces in his book The Four Steps to the Epiphany. Customer Development asks entrepreneurs to “get out the building”, which is another way of saying, “go talk to your customers.” This exactly what product management should be doing.

As such, this should come intuitively to product management, because product managers should always be focused on the customer. What the Lean Startup movement has done, though, is provided a methodical way to think about and approach how to conduct customer research. At the LSM workshop, we were forced to continually go find and talk to customers. LSM goes beyond theory by providing its participants with a tool called the Validation Board to capture one’s assumptions, create experiments, document learnings, and make the next pivot.

3. Traditional product development is wasteful. On the surface, this systematic way of hypothesizing, experimenting and learning can seem slow, because it’s not visibly tangible. Whereas a requirements document is. And code is. So both business management and even product management get trigger happy to start getting some code written, as its a way of showing demonstrable progress and makes us feel good that the product is getting developed. After all, the sooner the product is out there, the sooner we can make money!

Unfortunately, this traditional approach gives us a false sense of progress. The LSM workshop was a valuable reminder that if you don’t spend time upfront understanding your customers and their needs, you will build products no one wants. I learned this the hard way from first hand experience when I built a first-of-its-kind web product that cost a lot of money and took 6 months to launch only to achieve a miserable 2% registration rate two years after its initial launch. Ouch.

4. You must have a strong team. Now, granted, product managers can’t always choose their team members. Yet, what LSM got me to think is how many product managers think critically about the kinds of team members they’d like and then actually ask for them? And even in the case where one cannot choose their team members, as the leader of that team, how many actually spend time cultivating team unity?

5. Leadership is always, always required. This falls from the above point. The LSM workshop groups participants into teams and each team pursues an idea that received the most votes from the participants themselves. My experience reinforced the need for strong leadership by the team lead. This not only means building strong team unity of purpose, but also being able to effectively arbitrate discussions and be decisive. Exactly what a product manager is supposed to do.

6. LSM will test your influencing skills. Leadership is about influence. Product managers need to be strong influencers and negotiators. At the LSM workshop, you are working with people you’ve never met before on a team, and under a stringent timeline all of you need to come together as a team and demonstrate progress. I found my influencing skills were strenuously tested during the workshop, and it was wonderful.

7. Your solution, while interesting, is irrelevant. Sounds familiar, right? A riff on the traditional product management mantra of “your opinion, while interesting, is irrelevant”, though this takes it to the next level and targets the proposed solution itself.

Customers don't care about your product

Entrepreneurs love their ideas. They love their solutions. And so do product managers. While I’m not saying entrepreneurship and product management are the same, like entrepreneurs, product managers are natural problem solvers and we’re passionate about our solutions. Heck, I get passionate about my product ideas all the time! But the sobering truth is that it’s infinitely more important to first be crystal clear on who is your customer and what is their problem. Because the customer does not care about your product.

The LSM workshop forces you to think about the customer and their problem first. During the workshop, I saw first hand how many people struggled with staying out of the solution zone, including, I must admit, myself. By validating your customer and problem hypotheses, you’ll be in a better position to provide a real solution that solves actual customer problems.

I would definitely encourage you to attend a Lean Startup Machine workshop near you. I’ve written a recap of the one I attended on my blog and explain why I recommend product managers should attend LSM.

Have you attended an LSM workshop? What was your experience like? Have you tried applying Lean Startup principles in your work? Please share!